- 14 -
Next we consider whether petitioner is entitled to deduct
the disgorgement payment or the legal fees in connection with the
separate trade or business of selling insider information. To be
a trade or business, a taxpayer’s activity must be frequent,
regular, and continuous. Commissioner v. Groetzinger, 480 U.S.
23, 35 (1987); Juda v. Commissioner, 90 T.C. 1263, 1287 (1988),
affd. 877 F.2d 1075 (1st Cir. 1989). Activities that are
sporadic do not qualify as a trade or business. See Polakis v.
Commissioner, 91 T.C. 660, 670-672 (1988). Whether petitioner
was engaged in a trade or business is a question of fact.
Higgins v. Commissioner, 312 U.S. 212, 217 (1941).
It has not been established on this record that petitioner’s
sales of insider information were continuous and occurred
regularly. He obtained insider information and sold it to others
until his activities were discovered by the SEC. However, his
internship with Morgan Stanley was intended for a limited period,
after which petitioner intended to finish his college education.
The civil complaint filed by the SEC contained accusations that
petitioner sold insider information involving at least 25
companies resulting in $19 million in profits in connection with
Mr. Lee’s trading securities. The criminal charges against
petitioner identified five companies about which petitioner sold
insider information to Mr. Lee and Mr. Cronin. The criminal
information also contained allegations that petitioner had sold
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011